EBRD says eastern Europe ‘holding up quite well’ - FT

It will pull through the turmoil better than most parts of the world

Economic growth in eastern Europe and the former Soviet Union will slow following the upheavals in global financial markets but the region will pull through the turmoil better than most parts of the world, says the European Bank for Reconstruction and Development, according to Financial Times.

The bank yesterday announced a cut in its gross domestic product growth forecast for the region for 2008 from 6.1 per cent to 5-5.5 per cent, due to an expected slow down in the US and western Europe. ”Our region is holding up quite well, but there will be an impact on growth,” said Erik Berglof, chief economist.

The region’s resilience would help the eurozone economies as it was now the eurozone countries’ largest export market - bigger than the US, he added.

But Mr Berglof warned that some economies in the region with large current account deficits were vulnerable to a likely reduction in foreign capital this year, - including Bulgaria, Romania and Serbia.

The EBRD is also concerned about Kazakhstan, where banks have borrowed heavily in international markets. Mr Berglof said: “the country that best illustrates the issues facing the region is Kazakhstan...There are very real effects from global financial developments.” But he praised the steps taken by the Kazakh authorities to refinance the country’s banks whilst keeping an eye on the risks involved.

Bank officials welcomed a general repricing of risk that has occurred since the crisis erupted last summer, with a widening of borrowing costs between weaker and stronger debtors. Mr Berglof said there was now a “more appropriate pricing of risk”. Bank officials pointed out that, for example, Russia, a country with big financial reserves, was now paying considerably lower margins than Ukraine, which had more modest resources.